The Rise of American IncompetenceWe used to be the world's most skillful entrepreneurs and managers. Now we're laughingstocks. What happened?
Posted Saturday, March 15, 2008, at 7:12 AM ET
The dollar plunged to new lows against foreign currencies this week. There are plenty of reasons for its plunge, but at the most basic level, the dollar's weakness reflects the world's collective, two-thumbs-down verdict about the ability of the United States—businesses, individuals, the government, the Federal Reserve—to manage the global financial system and the world's largest economy. Countries that outsourced their monetary policy by pegging domestic currencies to the dollar are having second thoughts. Kuwait last year detached the dinar from the dollar, and Qatar government officials last week said they were considering doing the same with their currency. International financiers are unnerved by the toxic combination of "misplaced assumptions about housing, a lack of necessary regulation and irresponsible use of debt with sophisticated financial instruments," said Ashraf Laidi, currency strategist at CMC Markets.
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StumbleUponDissing American financial management is an affront to national pride tantamount to standing in Rome and asking, loudly, if Italians are able to make pasta. The United States invented the concept and practice of running large, complex systems. Along with baseball and deep-frying, management is one of our great national pastimes. The world's first MBAs were awarded by pioneering yuppie factories such as the Wharton School at the University of Pennsylvania. (Wharton's founding in 1881 was quickly followed by the world's first time-share summer houses in the Hamptons.) Henry Ford's revolutionary assembly line was the gold standard in global manufacturing for decades. Contemporary American institutions stand for excellence in managing everything from supply chains (Wal-Mart) to delivery services (Federal Express and UPS).
Americans' ability to manage complex systems has been the ultimate competitive advantage. It has allowed the United States to enjoy high growth and low inflation—a record we haven't hesitated to lord over our foreign friends. The shelves in the business section of a bookstore in a mall in Johannesburg, South Africa, are stocked with the same volumes you'll find in a Barnes & Noble in Pittsburgh, Pa.: memoirs by cornfed paragons of capitalism like Jack Welch, wealth-building advice from American money managers, large tomes on how Andrew Carnegie and John D. Rockefeller built global businesses from scratch.
But now, thanks to widespread incompetence, American management is on its way to becoming an international laughingstock. Faith in American financial sobriety has been widely undermined by the subprime mess. The very mention of the strong-dollar policy now elicits raucous bouts of knee-slapping in even the most sober Swiss banks. (How do you say schadenfreude in German?) Earlier this month, as oil hovered near $100 a barrel, President Bush complained to OPEC about high oil prices. OPEC President Chakib Khelil responded acidly that crude's remarkable run had nothing to do with the reluctance of Persian Gulf nations to pump oil, and everything to do with the "mismanagement of the U.S. economy." Since Bush's plea, oil has gushed to $110 per barrel. (How do you say schadenfreude in Arabic?)
Americans abroad are constantly taunted by perceived failings of American management. America's aviation system is now the butt of jokes because 9-year-olds have become accustomed to removing their Heelys before boarding a plane. As my family and I passed through the snaking security line in Cancún, Mexico's airport last month, we were harangued by a security guard who encouraged tourists to sing along with him: "Please. Do not. Remove. Your shoes."
The concern extends beyond airlines to America's industrial complex. Doubtful of the ability of provincial American executives, with their limited language skills, to negotiate today's global business environment, the boards of massive U.S. firms like Coca-Cola, Pepsi-Cola, Alcoa, and insurer AIG have hired foreign-born CEOs. Carl Icahn, the 1980s corporate raider, has reinvented himself as a borscht-belt comedian/activist investor, who delights conferences and reporters with jokes at CEOs' expense. On a recent 60 Minutes, Icahn complained to Lesley Stahl about the incompetence of American management. "I see our country going off a cliff, and I feel bad about it."
Icahn is moping all the way to the bank. The market's recognition of management failures gives him the opportunities to acquire companies on the cheap. But those of us who aren't billionaire corporate raiders—which is to say pretty much all of us—must manage through this management crisis on our own.
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Comments from the Fray
The problem with the American economy is not that American managers and entrepreneurs are incompetent; they are very good at getting rich. The problem is that they've discovered that getting rich and making their investors rich are two different things entirely.
--mlr
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Gross's article gave us opinions that seem to be spreading worldwide. As for me, he left out the staggering incompetence of economists in every respect--especially their addiction to improperly applying mathematical techniques to things they don't apply to: for example, computing assets' values for derivatives with weak markets and little chance of getting cashed in a bad market.
But in the realm of competence lies Kristen the escort. Some reports say she stands to earn $10 Million this week. Undoubtedly, many women will be drawn to follow her example and enter the oldest profession. Many men, too, will be tempted by the example set by Gov. Spitzer: if it's done by bigshots, it must be OK or even very desirable. GDP and employment should get a boost. Maybe the impending recession will be averted. At least Pfizer will get a boost. And the services sector should see some GDP gains. Is it possible that if we all work real hard and do a lot of the "Kristen-thing" then GDP will go up so much that the Dollar will recover?
By the way, NYT has an ad today for a Gucci handbag at around $7,000.
--Sovereign8
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The U.S. climbed to economic preeminence because it was forced to innovate. They were rich in resources and poor in labor, so they created labor-saving devices such as the assembly line as a coping mechanism. They also didn't have to fight a lot of wars being sandwiched between passive Mexico and Canada.
All of that is changing as the world shrinks. When a country is rich in labor (eg China) they will tend towards hierarchy, bureaucracy, collusion, monopoly and corruption, and move away from innovation. In the U.S.'s most important industry, high tech, they're importing lots of labor so as to make themselves labor rich in that industry. As a result they have companies like Microsoft and Google that have massive payrolls, and yet clearly don't show the kind of innovation one would expect from a company with their resources.
--wrolph
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